In the decade between 1997-2007, a massive amount of retail development swept the country, and Birmingham — like much of the Southeast — was considered a demographic sweet spot.
During this 10-year period, the majority of the population was at a peak buying age, the economy was performing well and most of the population was experiencing higher income levels. In Alabama, developers and retailers alike scrambled to keep up with the growth by building new shopping centers anchored by big and junior box concepts in every major town across the state.
Then the recession hit. As the market continued to slow, big and junior box retailers experienced decreasing sales and an overabundance of square footage brought new development pipelines to a halt.
Despite a growing desire among today’s retailers to lease new space, the market is lacking supply. Now that big box development has largely stopped in Birmingham and retailers are starting to downsize, there is virtually no development pipeline for new shopping centers within the suburban markets. Competition for prime leasable space within these suburban locations has become fierce.
Retailers, medical office tenants, and restaurants are all now vying for the same spaces that were built 10 years ago.
This demand may seem puzzling to some because there are still noticeable retail availabilities in the Birmingham market. However, the space that is left is there for a reason. Most of what is available is undesirable space within functionally obsolete shopping centers.
Enclosed malls are one example of functionally obsolete shopping centers struggling with excessive vacancy. Historically, these spaces do not translate well in the Birmingham market. Eastwood Mall closed in 2007 and was replaced by a Walmart-anchored shopping center. Located just across the interstate, Century Plaza closed in 2009, and its current owners recently proposed the property be converted into a jail and court facility.
Within the restaurant sector, the franchise market has exploded, which has driven a large portion of the retail demand in Birmingham. Panera Bread, Chipotle, Dickey’s Barbeque Pit, Smash Burger, Dunkin’ Donuts and Starbucks are just a few examples of massively growing franchise concepts exploring the market. In general, people are showing a desire to own their own businesses and these turn-key, lower-cost solutions have become a great option for these type of investors.
Additionally, the newer, hipper casual dining restaurants like Five, Moe’s Original BBQ, Little Donkey, El Barrio and Slice are finding opportunities to open in spaces that have sat neglected for years. The casual dining chain restaurant is under siege and dying quickly at the hand of newer, cooler and often cheaper casual and fast casual concepts.
There are some isolated development projects around junior anchored shopping centers in ancillary markets such as Cullman, Jasper, Gadsden and Tuscaloosa.
These junior anchored shopping centers are much smaller than what has been built in the past, generally totaling around 125,000 square feet. This means limited space is available for the smaller retailers vying for new suburban space.
With limited new development in the suburban Birmingham market, and fierce real estate competition among retailers and restaurants, many businesses have turned to urban infill. Tuscaloosa, for example, is experiencing massive development in and around the University of Alabama, including new stadiums, parks and condominiums. Retailers have begun to take notice, leasing space in these urban based locations and seeing great success.
As the Birmingham market continues to evolve, we will likely see more infill development with restaurants driving the growth. Suburban retail development will remain anemic until a new driver, such as the Northern Beltway, spurs residential growth. Birmingham’s retail outlook remains positive but, as always, growth is tempered by a quietly stable economy.
— Neal Owens, broker at Capital Growth Real Estate, who focuses on leasing, property management and sales